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Alcatel-Lucent: Don't Blame Ben

Ray Le Maistre
2/8/2013
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So Ben Verwaayen is leaving Alcatel-Lucent. Did he jump or was he pushed? There's little doubt that industry chat in the coming days will focus on whether he did a good job (or not) during his four-plus years at the helm. (See Verwaayen Quits as Alcatel-Lucent CEO.) If Verwaayen has been levered out of the job by influential investors and board members wanting fresh ideas from the CEO's chair, then Verwaayen can be entitled to think himself somewhat unfortunate, because the vendor's current problems stem from well before he took over in 2008 and are the result of weak corporate governance from 2004 to 2008, a key period in the company's development. When Alcatel-Lucent (or Alcatel-minus-Lucent, as some called it) was formed in 2006 by the merger of Alcatel and Lucent Technologies, it was an overweight, somewhat arrogant outfit already strangling itself with political in-fighting. The initial CEO, Pat Russo, had been the chief at Lucent, so there was continuity at the top of the management team. And that made sense, at least for a while. But Russo's executive team contained little (if any) fresh blood. It was a combination of CXO-types from Alcatel and Lucent and that resulted in stagnation. If the board had had its wits about it, it would have ousted Russo after a year and appointed an outsider to instill some order, curb the in-fighting and revamp the company's portfolio and strategy. By the time they brought in Verwaayen, in September 2008, it was almost too late. He spent the first six months clearing out many of the old guard and building his own senior executive team and the company cut thousands of jobs. But the product portfolio remained largely untouched. Sure, he could have been more brutal and cut deeper in terms of head count and product range. But one of the Verwaayen's main strengths was also one of his key weaknesses -- he cared too much about the company. Verwaayen had harbored ambitions to make Lucent a true world leader (and merge it with Alcatel) since the early 2000s when he was vice chairman of Lucent. (See this article about Verwaayen's appointment, where we dig into his background.) When he finally got his chance to shape the company, he had a solid set of personal attributes: knowledge of the company; a personal desire (beyond financial compensation and pure ego) to make the company a success; and very relevant experience of customer requirements, having been CEO of BT Group plc in his prior role. From his time at BT, Verwaayen could see where the market was going, which is why he steered AlcaLu's portfolio strategy more toward Service Provider Information Technology (SPIT). (See AlcaLu's New Vision: More Convergence and AlcaLu Shows Off Its Apps Abs.) But as he pushed in new, more relevant directions, he retained much of the portfolio baggage, and that dragged the company down. Nokia Siemens Networks, which was formed in April 2007, suffered from the same lethargy and didn't administer a major revamp until late 2011, a move that is now starting to deliver some stability. (See Has NSN Turned a Corner?) By the time Verwaayen finally started cutting into the legacy body of the company and pruning the workforce further with a series of measures announced during the second half of 2012, it looked to many like a case of too little too late. (See Alcatel-Lucent to Cut 5,000 Jobs, Alcatel-Lucent: Too Little, Too Late? and Alcatel-Lucent Sharpens Its Focus.) Recent financial developments suggest the new measures might just be enough, though the financial report for the fourth quarter and full year 2012 was a mixed bag of optimistic signs and worrying numbers. (See Alcatel-Lucent's Q4 Inheritance.) AlcaLu is not out of the woods yet -- not by a long way: 2013 is looking like a very tough year, especially as NSN is resurgent (especially in 4G) and Ericsson AB and Huawei Technologies Co. Ltd., though not immune to macro-economic and industrial pressures, can sense AlcaLu's ongoing vulnerability. There's no doubt that Verwaayen could have made some tougher decisions sooner during the past four-plus years, but he was handed a poisoned legacy to manage. Even though he has been the chief executive and the individual driving the company since late 2008, Verwaayen did just about as well as he, or anyone else, could have done. So don't blame Ben for AlcaLu's current precarious position -- blame the board. — Ray Le Maistre, International Managing Editor, Light Reading

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NoHayPedo
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NoHayPedo,
User Rank: Light Beer
2/13/2013 | 2:50:38 PM
re: Alcatel-Lucent: Don't Blame Ben
I remember going to one of Lucent's customer events (which were massive and expensive at the time) in 2000 and watching presentation after presentation about how VoIP would never work and how ATM was the only way to make the Internet function "properly."-á I knew they were doomed at that point.-á That was the last year I issued a purchase order for anything from Lucent.

After the merger with Alcatel, I wanted to see if perhaps Alcatel brought something to the table that I needed.-á And, I hoped that one of the previous acquisitions or at least some in house development had resulted in SOMETHING.-á Unfortunately, Alcatel-Lucent did not even seem to recognize how the industry had changed.-á Where they had been 80% of my network, they were 0% of what I was buying.-á All they had to show me was the same legacy equipment I was trying to power down and eliminate.

I blame the Board and everyone in leadership positions at the combined company.-á Lucent and Alcatel should have learned humility by 2001, been fully humble by 2002, and by 2003 started asking their customers what they wanted instead of telling them what they needed.

Instead, they disappeared. It was as if they were too embarrassed to show their faces. And that continues to this day.
FbytF
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FbytF,
User Rank: Light Sabre
2/13/2013 | 2:13:17 PM
re: Alcatel-Lucent: Don't Blame Ben
Is it possible Ben is out as a condition of the lenders that provided the recent loans?
Gerboise Bleue
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Gerboise Bleue,
User Rank: Light Beer
2/12/2013 | 9:31:38 AM
re: Alcatel-Lucent: Don't Blame Ben
Amen to that. I work for ALU and this is what I feel too. My current biggest concern is that ALU is becoming more and more American. I feel that former Alcatel employees and shareholders have been duped. The company is now evolving towards a North American firm. Tons of French execs have been replaced by Americans as part of the Performance program - this is not what is expected considering that Alcatel bought the ailing Lucent, not the opposite! One of the last powerful French in the company (Philippe Keryer) has relocated to Murray Hill. This is not what is expected from a multi-national company incorporated in France. This change of politics has been correctly identified by a few newspapers.
To sum up, I think Alcatel lost big by buying Lucent. The topline is nowhere near what Alcatel was doing before, and we now rejoice when signing 20 M$ contracts when we used to sign 200 M$ contracts ten years ago. I will be brutally honest by saying that Lucent has sucked the lifeblood out of Alcatel to survive.-á
I don't want to see a story +á la Nortel. We can't afford losing yet another technology champion.
Ray Le Maistre
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Ray Le Maistre,
User Rank: Light Sabre
2/12/2013 | 9:15:02 AM
re: Alcatel-Lucent: Don't Blame Ben
My opinion, as stated in the article, is that ALU's current problems are the result of "weak corporate governance from 2004 to 2008, a key period in the company's development."-á

That board was lead by Serge Tchuruk, who had been CEO of Alcatel. I blame THAT board for complacency and for sowing the seeds that have resulted in today's problems.-á

BY the end of 2008 the composition of the board had -áalmost completely changed and many of the individuals with ties to the old Lucent and Alcatel were gone -- only two board members/directors from 2007 are still on today's board of 11 people.

So, to be clear, I don't blame the current board for Verwaayen's performance. I blame the board members who oversaw the merger process and the first few years of Alcatel-Lucent for creating a monster that has proved practically impossible to tame.-á

And, of course the CEO is the person in day-to-day charge of running the company and steering the company. Things have not gone well during the past 4+ years and some of that is down the Verwaayen - he has even admitted publicly that he made mistakes. What I am saying is that the main culprits are the board of 2004-2008 and that they should be shouldering the majority of the blame -- IN MY VIEW Verwaayen did just about as good a job as he could have done GIVEN ALL THE CIRCUMSTANCES.-á

Just my gut feeling. I think neither Alcatel nor Lucent were fully prepared for the merger and that the first few years as a merged company were wasted on political infighting and bogged down by complacency at the top level of the company and that was a legacy that has now shafted the company.
Disinto
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Disinto,
User Rank: Light Beer
2/12/2013 | 4:36:14 AM
re: Alcatel-Lucent: Don't Blame Ben
.
pjbclarke
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pjbclarke,
User Rank: Lightning
2/11/2013 | 9:14:31 PM
re: Alcatel-Lucent: Don't Blame Ben
Ovum agree a merger would be dumb http://techday.com/telco-revie...
meter
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meter,
User Rank: Light Beer
2/11/2013 | 7:10:06 PM
re: Alcatel-Lucent: Don't Blame Ben
-áRay - I am glad you are sticking to your guns.

But I am confused when you blame the board for the last CEO's results, but now for this massive shake-up, you feel it will depend on the new CEO. Why should the same board that chose the last CEO now choose a different profile? Maybe you are suggesting that ALU needs a massive shake-up of its Board?

Also, it raises the more interesting question: Is a CEO in charge or not? If he/she is in charge, then he/she should get the credit/blame. If not, then why have a CEO? Just as a figurehead so the Board can continue to screw up?

I personally do not subscribe to the theory that a Board is responsible for the executive actions taken by the CEO, but clearly I don't know much about how French companies operate.

gocowboys' comment re: stock price before and after Ben is very telling.
brookseven
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brookseven,
User Rank: Light Sabre
2/11/2013 | 3:59:44 PM
re: Alcatel-Lucent: Don't Blame Ben
I assumed that we talk about joining NSN and ALU because the Walking Dead has new episodes and its a tie in. :)

seven
Ray Le Maistre
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Ray Le Maistre,
User Rank: Light Sabre
2/11/2013 | 3:46:55 PM
re: Alcatel-Lucent: Don't Blame Ben
That will depend on the new CEO, I think. The market has evolved to the point where ALU needs an external appointment with no 'baggage' -- someone who can take a cold hard look at the assets and make a call based on current market conditions.
I think the big question for any AlcaLu CEO (and I'm sure this has been a thorn in Verwaayen's side) is -- how much would it cost to extricate the company from the multiple legacy markets in which it is still entrenched? The company is trying to wean itself off the unprofitable managed services deals it got sucked into in 2005-2009 - can it do that/offload product lines with customer commitments in other areas?

It's gonna be a tough one, though - a big shake-up could just as easily kill as save the company... But this chat of a tie-up with NSN has got to be kicked into touch...
brookseven
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brookseven,
User Rank: Light Sabre
2/11/2013 | 3:21:15 PM
re: Alcatel-Lucent: Don't Blame Ben
Ray,

I would say ALU is one of the worst in recognizing the change in the way products are bought and evolve. -áThis leads them to massively over invest in products that are not winners and even too much follow on work on good products. -áBasically they still have an investment profile on products from 15 years ago.

I am not sure that without a massive shakeup that this can change. -áI am not sure that ALU can even contemplate this.

seven
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